Income Tax Dept. Can't Withhold Refunds In Mechanical And Routine Manner: Delhi High Court
The Delhi High Court has held that an order under Section 241A of the Income Tax Act cannot be passed in a mechanical and routine manner. The refunds cannot be withheld just because the notice under Section 143(2) has been issued and the department wants to verify the claim for deduction under Section 10AA of the Income Tax Act.The division bench of Justice Manmohan and...
The Delhi High Court has held that an order under Section 241A of the Income Tax Act cannot be passed in a mechanical and routine manner. The refunds cannot be withheld just because the notice under Section 143(2) has been issued and the department wants to verify the claim for deduction under Section 10AA of the Income Tax Act.
The division bench of Justice Manmohan and Justice Manmeet Pritam Singh Arora has observed that the order under Section 241A was generic and no attempt was made by the department to substantiate how the grant of the refund is likely to adversely affect the revenue.
The petitioner/assessee stated that the department via email confirmed that the Income Tax Return has been processed and a refund along with interest amounting to Rs.21.80 crore under Section 244A has been determined as due to the petitioner. The refund due to the petitioner was liable to be released at the time of the processing of the return under Section 143(1). Section 143(1) of the Act is mandatory in nature, binding and uses the expression "shall". However, despite the clear statutory provision, no refund has been issued to the petitioner till date.
The petitioner submitted that the order only states that a claim of deduction under Section 10AA needs to be verified and it is likely to result in huge demand. The order is bereft of any reasoning as to why the refund should be withheld.
The petitioner contended that the order was factually incorrect as it stated that the assessee had claimed a deduction under Section 10AA for Rs.10,95,87,033 and that this was the first year of claim as a new SEZ unit had been set up.
The petitioner submitted that there are two SEZ units, i.e., Unit 1 (old unit) and Unit 2 (new unit). Unit 1, is the fourth year of claim, and for unit 1, the deduction under Section 10AA has already been allowed in earlier years by the respondents. For Unit 2, it was the first year of claim. Hence, according to her, the question of the allowability of deduction under Section 10AA for SEZ Unit 1 does not arise.
The court held that the petitioner is liable to be released at the time of issuance of the intimation/order under Section 143(1) unless an order for withholding of refund has been passed under Section 241A of the Act, explicitly recording that the grant of refund is likely to adversely affect the revenue.
"The Order lacks sufficient reasoning to hold that the revenue would be adversely affected by the grant of refund. Accordingly, the impugned order dated June 15, 2022, passed under Section 241A of the Act is quashed and the matter is remanded back to the Office of the Assistant Commissioner of Income Tax Circle 43(1), Delhi with a direction to pass a fresh speaking order within six weeks," the court said.
The court ruled that even if the higher amount was withheld, the petitioner would still be entitled to a refund along with applicable interest under Section 244A of the Income Tax Act.
Case Title: Trueblue India LLP Vs Deputy/Assistant Commissioner of Income Tax Circle
Citation: 2022 LiveLaw (Del) 768
Dated: 28.07.2022
Counsel For Appellant: Advocate Ananya Kapoor
Counsel For Respondent: Sr.Standing Counsel Sunil Agrawal